Lu Ting: The Global Energy Crisis, Power Supply, and China's Hidden Advantages in Manufacturing

The world is experiencing one of the most severe energy supply shocks in decades. The escalation of the Iran conflict has led to the full closure of the Strait of Hormuz. As one of the most important energy chokepoints in the world, around 20% of global oil and liquefied natural gas (LNG) transits through it in 2025. Since February 27, a wide range of energy benchmark prices have surged sharply: East Asia’s LNG prices are up 87.7%, Europe’s LNG prices are up 58.7%, and Brent crude oil prices are up 79.3%. For most industrial economies, the consequences of the shock are immediate—fuel costs are rising rapidly, and power supply is tightening, directly weakening their export competitiveness.

Even though China is the largest user of the Strait of Hormuz and also the world’s largest net importer of oil and natural gas, the global energy supply shock caused by a blockade of the Strait of Hormuz would inevitably hit China’s energy supply as well. Meanwhile, global economic slowdown would also affect China’s export-oriented companies. But China’s export companies have demonstrated high resilience in past external shocks. Manufacturing exports account for 95% of China’s total goods exports and 25% of global manufacturing exports. Over the past 20-plus years, as the global trend toward manufacturing electrification has accelerated, the unique structure of China’s power system has meant that Chinese manufacturing is almost unaffected by the current fluctuations in LNG and oil prices that are sweeping global markets. In an increasingly electrified world economy, China’s modernization—a strictly regulated electricity supply system dominated by domestically produced coal, with little reliance on oil and gas, and with rising shares of substitute energy sources—could provide China’s export industry with a rare competitive advantage. Accounting for roughly 30% of global manufacturing, China’s manufacturing sector may, somewhat inadvertently, have its position further reinforced by the current global energy situation. Of course, if the global energy crisis continues to worsen, it would ultimately affect China’s oil and gas supply and external demand to an even greater extent.

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